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Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath & Body Works, Inc. fourth quarter 2025 earnings conference call. Please be advised that today's conference is being recorded. During the question-and-answer portion, you may ask a question from the phone by pressing star one. I will now turn the call over to Luke Long, Vice President of Investor Relations. Luke, you may begin.

Good morning, and welcome to Bath & Body Works, Inc. fourth quarter 2025 earnings conference call. Joining me on the call today are Daniel Heaf, Chief Executive Officer, and Eva C. Boratto, Chief Financial Officer. In addition to this call and this morning's press release, we have posted a slide presentation on our website that summarizes the information in these prepared remarks and provides some related facts and figures regarding our operating performance and guidance. As a reminder, some of the comments today may include forward-looking statements related to future events and expectations. For factors that could cause actual results to differ materially from these forward-looking statements, please refer to the risk factors in Bath & Body Works, Inc.’s 2024 Form 10-K. Today's call also contains certain non-GAAP financial measures. Please refer to this morning's press release and supplemental materials for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. With that, I will turn the call over to Daniel.

Thank you, Luke, and good morning, everyone. Today, we will discuss our fourth quarter results, our outlook for fiscal 2026, and the early progress we are driving to return the company to consistent growth. Our fourth quarter performance was better than we had anticipated, but still well below the standard we expect for ourselves. Our aspiration is clear: to bring together luxury scent, real benefits, and unmatched access, building a brand consumers love, trust, and choose every day. Last quarter, we introduced the Consumer First Formula, our multi-year plan to return Bath & Body Works, Inc. to sustainable growth. Our fourth quarter results reinforced our diagnosis, and the necessity and urgency of this plan. After a soft start to the quarter, our actions to strengthen our performance were successful, supported by consumer rebound after the government reopened and strong execution of targeted promotions by our teams during key holiday moments. We ended the quarter with net sales down 2% and adjusted EPS of $2.05, both ahead of our expectations. Looking ahead, we expect improvement in our financial performance as we execute the Consumer First Formula with discipline and urgency. However, the full financial impact of the actions we will take will take time and build throughout 2026 and accelerate into 2027. Since launching the Consumer First Formula last quarter, we have been focused on execution. Across the organization, teams are motivated, aligned, and moving with pace. With many new roles and leaders in place, we are implementing an enhanced go-to-market approach with improved processes and collaboration between product, brand, and marketplace teams. Let me walk through some of the progress we are making across our four strategic priorities. First, creating disruptive and innovative products. Strengthening our hero category product offering and restarting our innovation engine is foundational to our plan. Since Q3, our product, merchant, and supply chain teams have been working side by side to take insights from consumers and prestige brands and translate them into innovative products that we can deliver to consumers at extraordinary value and unmatched scale. We are prioritizing investments behind our fragrance icons, our priority product franchises, and the core forms that drive repeat purchase. A recent example is the launch of our new moisturizing hand soap, one that features an updated, efficacious formula, elevated packaging, and is marketed as benefit-first. Since the launch, consumer reviews and sell-through have been strong, so much so that we are now actively chasing into demand. This is a sign of things to come as we refocus on the consumer and our hero category. Our 2026 product pipeline reflects this approach to innovation. It is grounded in consumer insights, incorporates enhanced consumer testing, and is targeted in the body care, home fragrance, and soaps and sanitizers categories where we are the market leader. In the back half of 2026, consumers will begin to see significant product evolution in these hero categories that include new forms and upgraded vessels, such as the restage of our moisturizing body wash and a new flat-back spray hand sanitizer, both directly informed by consumer feedback and designed to look modern while improving usability. We are also strengthening how we communicate product quality by evolving the labeling on our packaging, emphasizing ingredient transparency and highlighting product efficacy and benefits, such as 48-hour moisture and dermatologist-approved claims. We know stronger quality messaging is critical to attract new, younger consumers, and it is already being rolled out across all touch points, including our stores, digital platforms, and our product labels. We expect that our new product formula, upgraded packaging, stronger product claims, and elevated franchise positioning will increase our appeal to new consumers, while also increasing loyalty amongst our core customer base. We also expect consumers to respond positively to the rollout of higher fragrance load across our iconic scent franchises and complemented by new sensitive skin offerings. These examples reflect our focus on strengthening leadership in the core, delivering more consistent and relevant benefit advancements, and better meeting the evolving expectations of today's consumer. In short, these are early actions of a much broader innovation agenda which accelerates in the back half of the year and continues through 2027. Earlier this quarter, we launched our latest Disney Princesses collaboration. Building on the insights from last year's collection, including offering a broader range of accessories, this latest lineup features five new fragrances: Life Is a Fairytale, Snow White, Mulan, Rapunzel, and Aurora, along with the return of two fan favorites from the original collection, Belle and Tiana. The launch has resonated with customers and overall is in line with our expectations. Collaborations remain an important part of our growth strategy, and we have more collaborations planned this year than last. As we said last quarter, we will over time deploy them differently and more strategically to drive energy into our fragrance icons, key franchises, and seasonal collections. A good example of this is the launch of the Peak Collection, specifically designed to support the Easter shop. In summary, we are moving with pace to modernize our product packaging and formulation, and this will become increasingly visible in the back half of the year and continue to build through 2027. Second, reigniting the brand. We have begun laying groundwork to modernize how Bath & Body Works, Inc. shows up and communicates with consumers. Our brand and marketing teams are shifting towards clearer, more elevated brand and product storytelling. We are sharpening our position and creative platform, adopting a modern, consistent visual identity across channels, and increasing investment in upper-funnel media with higher-caliber influencers and creators to build a more culturally relevant presence that sparks excitement and builds awareness with new consumers. Earlier this quarter, our evolved brand identity made its debut on Amazon, showcasing Bath & Body Works, Inc. in a modern and relevant way for today's consumer. I will speak more about the Amazon launch in a moment. This updated visual identity is supported by richer, visually compelling product storytelling that highlights what makes our brand distinct. That everyone deserves to find that feel good. As expert creators, we bring together luxury fragrance, meaningful benefits, and easy access delivered at exceptional value. The new brand expression that debuted on Amazon will begin rolling out across our own channels later this year. As we modernize the brand, creators and influencers at scale will be an important part of our new go-to-market strategy. The use of influencers is a proven go-to-market playbook that will allow us to create a more visible and consistent presence across the social media platforms we know our consumers use every day. These actions are the beginning of a transformation of Bath & Body Works, Inc. from a retailer to a global brand, one that leads with creativity, celebrates product, and creates culture. I know what this looks like when it is successful, and I can see the upside. Third, winning in the marketplace. Discovery should feel effortless. We are focused on meeting consumers wherever they choose to shop—online, in stores, and across third-party platforms. Our global store fleet is a meaningful advantage in beauty and fragrance, one that would take newer competitors significant time and resources to replicate, and we are committed to fully leveraging its strength. To welcome more consumers to the brand, we have taken steps to simplify and modernize the in-store experience. For example, we have reduced SKUs by 10%. Looking ahead, we are focused on enhancing in-store navigation. Changes will roll out later this year, creating a more intuitive, inviting, and elevated shopping journey. I am confident the consumer will feel the difference. At the same time we are making these in-store changes, we are broadening and improving how consumers can discover and shop the brand across owned digital and third-party platforms. A major milestone in this work was our February 20 launch on Amazon. We know consumers often go to Amazon to purchase their beauty products, and this launch gives us access to Amazon's broad, high-intent customer base, enabling us to reach new and lapsed consumers in one of the world's most trafficked marketplaces. The curated Amazon assortment is designed to attract new shoppers to the brand while giving loyal consumers far more convenient access to their favorite products. As we learn more from our Amazon launch, we are evaluating additional opportunities to extend our distribution further in strategic and brand-accretive ways. In parallel, we are elevating our owned digital experience with a focus on reducing friction and improving the customer experience through clearer product navigation, stronger storytelling, and a more intuitive and modern shopping experience. For example, we have now lowered our free shipping threshold from $100 to $50, aligning more closely with specialty retail standards, enhancing our competitive positioning, and crucially reducing friction for new-to-brand consumers. Looking outside of North America, our international business continues to be an exciting opportunity. The international business is approaching $1 billion in retail sales. Our partners, who own and operate the stores, believe in our strategy and are accelerating the pace of new store openings across existing and new markets, including Germany and Brazil. This reflects the strong global demand for our brand and allows us to further expand our reach to consumers worldwide. Our goal here is simple: be in the path of the consumer, spark discovery, and ensure the Bath & Body Works, Inc. brand shows up consistently and powerfully across every owned and partner touch point. Finally, operating with speed and efficiency. We are laser-focused on removing complexity from our business, streamlining decisions, shortening cycle times, and driving productivity. Our multi-year Fuel for Growth program targets $250 million in cost savings over two years, with approximately $175 million included in our 2026 guidance. These savings allow us to accelerate and fund our strategic investments in product and brand. As we move forward, we are closely monitoring indicators that our strategy is gaining traction, and we will share green shoots along the way, such as accelerated growth in new-to-brand consumers, stronger pricing power behind our innovation, improved performance in our hero category, and expanded reach through new distribution channels. The Consumer First Formula represents a comprehensive end-to-end transformation of our company. It is designed to ensure we consistently meet and exceed the expectations of today's modern consumer. This work is well underway. We are moving with urgency, and as the year unfolds, our progress will become increasingly visible to consumers, associates, and shareholders alike. At the core, this transformation is repositioning us from a specialty retailer to a premier global brand. With that, I will turn it over to Eva to walk you through our financial performance and outlook.

Thank you, Daniel, and good morning, everyone. Today, I will provide the details of our fourth quarter results, a wrap up of 2025 performance, and a review of our 2026 guidance. Beginning with the fourth quarter, net sales were $2.7 billion, down 2.3% versus last year and better than the guidance floor we set of down high single digits. This performance reflects improvement as the quarter progressed following a soft start in early November when we navigated significant macroeconomic pressure that impacted our consumer demand. Our targeted promotional and operational adjustments, such as a new Black Friday weekend event, drove dual-channel traffic growth on those key days. Our Q4 category performance reflects the same challenges we shared in Q3. We must deliver consumer-right product innovation, elevate the brand, and be available wherever and whenever she chooses to shop. Body care declined mid-single digits, below the shop, driven by underperformance in seasonal collections, notably Holiday Traditions, which did not resonate for the first time in several years. Consumer research shows our body care offerings have become too predictable and that we need to be more disruptive with modern, benefit-led innovation. On a positive note, Champagne Toast had its strongest year ever, validating our strategy of elevating our core fragrance icons. Home fragrance grew low single digits, performing above shop. Candles were a relatively bright spot, supported by stronger three-wick and single-wick acceptance, better inventory positioning, and disciplined pricing. Soaps and sanitizers also grew low single digits, with our PocketBac sanitizers leading the way. In U.S. and Canadian stores, net sales were $2.1 billion, a decrease of 2.6% to the prior year. Direct channel net sales were $579 million, a decrease of 2.5%. When adjusted for Buy Online, Pick Up In Store, digital outperformed stores. International net sales were $91 million, up 8.6% to the prior year, and system-wide retail sales grew 13%. We are pleased with the rebound of our international business, with all geographies delivering growth, and our partners maintained healthy inventory positions. Our fourth quarter adjusted gross profit rate was 45.7%, better than expected and a decline of 100 basis points to last year, driven primarily by tariff impacts and partially offset by B&O leverage, which benefited from the Q1 2025 exit of a third-party fulfillment center. Mix-adjusted AUR declined low single digits, reflecting our strategies during holiday. Adjusted SG&A rate was 23.2%, an increase of 90 basis points to last year, reflecting softer sales and investment in technology and initiatives associated with the Consumer First Formula. Bringing it all together, adjusted operating income was $614 million, 22.5% of net sales. Adjusted earnings per diluted share of $2.05 exceeded expectations and declined 2% to last year. With respect to inventory, we ended the fourth quarter with inventory down 5% to prior year and, importantly, with clean inventory levels headed into spring. Our real estate portfolio remains healthy, with 60% of our fleet in off-mall locations. In the quarter, we opened 21 new North American stores, all off-mall, and closed 28 stores, primarily in malls. For the year, we opened 32 net new stores. International partners opened 36 stores and closed seven stores in Q4, with 44 net new stores in the year. We ended the year with 573 international locations. Now, for the fiscal year 2025, net sales were $7.3 billion, flat to the prior year, and adjusted earnings per share was $3.21, down 2% to the prior year. For additional full-year results, please refer to the slide presentation we have posted on our website. Turning to our 2026 guidance. We expect 2026 to be a year of disciplined investment behind the Consumer First Formula, balancing rigorous cost control with targeted reinvestment to position the business for sustainable long-term growth. We expect net sales to be down 4.5% to down 2.5%. Key assumptions behind our net sales include a macro environment similar to 2025 with continued value-oriented consumer behavior. Our innovation pipeline, improved marketing execution, and new touch points, such as marketplace and wholesale, will begin to contribute more meaningfully over time, with a greater impact in the back half of 2026 and into 2027. Promotions are assumed at comparable levels to 2025 and will remain an important tool to drive traffic and customer engagement. International net sales are expected to be up mid- to high single digits. We expect full-year gross profit rate of approximately 42.4%, reflecting B&O deleverage primarily due to sales decline and merchandise margin pressure from product investments, partially offset by our Fuel for Growth initiatives. We are assuming tariff levels, inclusive of product cost inflation pressures, remain roughly neutral to year-over-year earnings. We expect full-year adjusted SG&A rate of approximately 29.2%, reflecting normal wage inflation, Consumer First Formula investment, and sales deleverage, again partially offset by Fuel for Growth initiatives. Our Fuel for Growth targets $250 million in cost savings over two years. As Daniel mentioned, we expect approximately $175 million of cost savings in 2026, with those savings earmarked to accelerate investments in innovation, digital, and marketplace capabilities, and high brand-impact initiatives. We expect full-year adjusted net non-operating expense of approximately $230 million, reflecting the interest benefit of the early redemption of our January 2027 bond, an adjusted effective tax rate of approximately 26.5%, and weighted average diluted shares outstanding of approximately 203 million. There are no share repurchases assumed in our outlook. Considering these inputs, we are forecasting full-year adjusted earnings per diluted share of $2.40 to $2.65. Turning now to the first quarter. We expect Q1 net sales of down 6% to down 4%. We expect first quarter gross profit rate to be approximately 42.5%, reflecting approximately 150 basis points headwind from tariffs, as we had no tariff impact in Q1 2025, and B&O deleverage due to the sales decline. B&O dollars are expected to be relatively flat. We expect our first quarter adjusted SG&A rate to be approximately 32.3%, reflecting net sales deleverage and net timing of investments and Fuel for Growth savings. Our first quarter outlook includes adjusted net non-operating expense of approximately $60 million, an adjusted tax rate of approximately 28.5%, and weighted average diluted shares outstanding of approximately 202 million. Considering all of these inputs, we are forecasting first quarter adjusted earnings per diluted share of $0.24 to $0.30. Now for a quick update on capital allocation. We are a strong cash flow generating business, and our top priority remains driving sustainable long-term profitable growth through strategic investments in the business. For the full year 2025, we invested $237 million in capital expenditures. We generated free cash flow of $865 million, including approximately $125 million of working capital benefits that our teams drove. We returned $167 million to shareholders through dividends and repurchased 15.1 million shares for $400 million. In 2026, we expect to invest approximately $270 million in capital expenditures focused on high-return real estate, Consumer First Formula investments largely related to product assortment, and logistics and fulfillment upgrades. We expect to reduce the number of new store openings this year, resulting in square footage growth of approximately 1%. We expect to generate approximately $600 million of free cash flow in 2026, including a $65 million after-tax benefit from the interchange fee litigation settlement. We expect to maintain our annual dividend of $0.80 per share and will redeem our $284 million of January 2027 notes in the first quarter, as I previously noted. We remain committed to returning to our 2.5x gross leverage target over time. As always, we will take a balanced approach, investing to drive long-term growth while returning excess cash to shareholders. To summarize, 2026 is an investment year as we execute our Consumer First Formula with pace and discipline. We are confident in our strategy and our ability to establish Bath & Body Works, Inc. as a premier global brand, one that delivers sustained, durable growth.

Thank you. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Our first question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.

Daniel, I wanted to get your insight on the competitive landscape across mass, specialty, and other fragrance players. Some of these competitors are also leaning heavily into content creators and elevated packaging. How are you approaching this, and do you think you are positioned to compete effectively at this point?

Good morning, Lorraine. Thanks for the question. Without a doubt, the landscape we are operating in is increasingly competitive. We operate in innovative, useful, fast-growing, high-margin categories that naturally attract strong interest and new entrants. I really love the sectors that we play in. As I explained on the last earnings call in Q3, for a period our product innovation, our brand expression, and our market execution did not keep pace with the competition or with the consumer. We leaned too heavily on promotions to drive the business. The Consumer First Formula is directly addressing those gaps, and we are moving with pace. It is not strategy; it is action. You will see from us bold and disruptive product innovation—you know, we talked about a green shoot on the call in the moisturizing hand wash—new packaging, new formula, benefit-led marketing, and the success that we have had; a refreshed and reenergized brand that resonates with today's consumer; and an elevated and extension and expansion of our distribution in the marketplace, as you have seen with our February launch on Amazon. Now, as part of that marketing evolution, we are going to significantly expand the use of content creators. This is really what I mean by moving from being a specialty retailer to being a global brand. We expect to see a roughly tenfold increase in how we leverage content and how we leverage content creators so we can show up in social media in a way that is modern and relevant. What I love so much about this job and what I love so much about this company is where we sit. We are evolving to adopt the playbooks used by these small insurgent competitive brands, but we do so from a position of strength and with what I believe are significant competitive advantages. We have the scale and resources to invest meaningfully. We have our 2,500 stores globally, which gives us an amazing amount of trap to capture the demand we create. We have our fast, agile domestic supply chain that allows us to chase into demand, and we offer extraordinary value to our consumers. What I like about where we sit is that we will be an incumbent but operating with the pace and the agility of an insurgent brand. I have so much confidence in our strategy, in our competitive position, and, most importantly, in our team's ability to execute with pace.

Thanks, Daniel. And Eva, can you talk a little bit about the puts and takes around your gross margin forecast for the year? What's embedded for tariffs, promotions, any other items? I would have thought you would get some of those elevated China tariffs back over the course of the year, so maybe just how you are thinking about the pace of gross margin development through the year?

Sure. Thanks. Good morning, Lorraine. Overall, our outlook assumes about 130 basis points of gross margin pressure. I will start with merch margin, where we expect to see pressure really driven by those product investments that Daniel just referenced. You will begin to see some of that new product in the back half of the year. From a tariff perspective, our guidance assumes tariffs inclusive of product cost inflation. It is tough to separate those, roughly flat to earnings year over year. I would note you will see an outsized impact in Q1 as we are wrapping the start of tariffs, which for us began in Q2 of last year. We had essentially no tariff in Q1 2025. That reverses a little bit with some of the rate movements in Q3 and Q4. We expect to experience B&O pressure as well, natural deleverage given the sales declines, the investments we are making in real estate, and some wage inflation. This is all net of our Fuel for Growth. The Fuel for Growth program that we highlighted, about half of the savings flow to gross margin versus the other half to SG&A. We are continuing to mine for opportunities to improve our underlying cost as we progress. Thank you.

Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Please proceed with your question.

Hey, good morning, everyone. Congrats on the improvements. I guess two questions. First one, Eva, can you help us understand the Q1 revenue guide a little more? Just looking for some thoughts really relative to the trends maybe that you saw exiting the fourth quarter?

Sure. Thanks for the question. I will start with a comment we made last November that was very consistent in Q4. When you exclude the benefit of broader promotional activity, our core business has been trending down about 3%. As I noted in my prepared remarks, our plan does assume promotional levels consistent with 2025. We are not building incremental promotional intensity into our plan. That does not mean we will not have different promotional events, but overall, as we think about intensity, we are assuming we are relatively flat. Think about the 3% I referenced as a baseline for 2026. For Q1, we are facing our most challenging year-over-year comparison from a top-line perspective. We had our strongest quarter last year in Q1.

Got it. So I guess my follow-up is kind of to that point. So last year in Q1, I think you started off with a really successful collab, which created some tough compares for you this year. But just kind of curious if you can comment on how the follow-up Princess launch, which you had a few weeks ago, did. I think Daniel had some positive comments, but really just trying to understand how you were able to comp that event, and if that sets you up well relative to the Q1 guide that you are giving us today on revenue.

Sure. Let me take that question in a couple of ways. First, on the Disney Princess 2.0 launch, we built on our learnings from last year and our insights. We offered a broader range of accessories. Last year, those accessories sold out very quickly, within a day or a couple of days. Overall, the launch has resonated with existing customers and is overall in line with our expectations. I would say you cannot just look at Disney in isolation as to how it is affecting the overall shop. Q1 to date is tracking in line with the expectations that we just set. While Q1-to-date top line is running above our guidance range, that is consistent with our internal cadence of assumptions, and if there is some movement in timing of key events, that can affect the quarter. Overall, we are running in line with our expectations.

Thank you. Our next question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Great. Thanks. So, Daniel, maybe taking a step back, what signposts should we look for to know that your Consumer First Formula is working here? What gives you confidence in the plan, or any green shoots that you are seeing at this point?

Good morning, Matt. Yes, great question. Let me give you a little bit of color on that. Let me start by saying I am really pleased with how fast the whole company has moved from strategy to action. We are all collectively motivated and aligned behind the four pillars. We are focused on the Consumer First Formula, and I believe we are moving with real pace and discipline. The most important signposts are very clear and measurable, and we expect to see an acceleration in new-to-brand customer growth. We expect stronger pricing power and sell-through behind our core innovation. We are definitely looking for improved performance in our hero category, specifically body care in 2026, and expanded reach and incremental sales from the new distribution channels that we will open this year, like Amazon, which we opened on February 20. These are just some of the tangible proof points that the Consumer First Formula is working. As I have said a number of times, we expect the change to be visible to the consumer before we see the full benefits of our new strategy in the financials. I believe there are things that the consumer is already starting to feel. We talked about the moisturizing hand soap—it is a new formula, efficacious, benefit-led marketing—and we are seeing great customer reaction from that. It is just a signal of the things that we have to come. As I said in Q3, we are really ramping into product innovation in the back half of this year. As Eva mentioned, we talked about the iconization of our fragrances. If we put the right level of marketing, if we build multi-plan behind some of our iconic fragrances, we believe we can make big bigger. We started that with Champagne Toast last year almost as a test, and it had its best year ever. We have a way to go to deliver that, but we will show that in 2026. We talk about winning in the marketplace. International continues to be a great opportunity and grow nicely. We saw system-wide retail sales up double digits, which gives us confidence in the global opportunity for the brand. I would say Amazon is an important structural proof point, one that we have already launched early into the fiscal year, and we know it is an opportunity to acquire new-to-brand customers as well as service existing customers at a speed and convenience that this brand has not offered in the past. That is a little bit of color behind some of the proof points.

And, Daniel, can I just add a couple of additional points from the points you made? As you look at international, our partners are showing confidence in the strategy with acceleration of new store openings next year. We are expanding in new markets, and our store openings will be at least 60 net new store openings. On the point that Daniel made about the moisturizing hand soap, as we look at the productivity of that, the productivity of that is double the gel soap that it is intended to replace. It is just an early proof point of real, tangible benefits when you bring the product to the market that resonates with the consumer.

Thank you. Our next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.

Good morning. Thanks for taking my question. Starting with margin, guidance implies low-teens EBIT margin this year. Do you view this as a durable base for the business? And then what is your philosophy on driving faster top line versus EBIT margin expansion in fiscal 2026 and into fiscal 2027?

Sure, Mark. I will start with margin. This business has been a very healthy margin business for a long time. We need to invest for growth responsibly while we are funding the journey through our Fuel for Growth, but we must invest in this business to get the business back to growth, and when you do that, this business leverages nicely. As we think about margin expansion beyond 2026, we will come back to you as we continue to execute on the Fuel for Growth strategy. I would think about it as there is leverage to be had as we drive growth in the business.

It is growth and margin, but growth must come first.

Thank you. And then a follow-up on capital allocation. You are pausing buybacks, redeeming the nearly $300 million in debt in Q1. But if free cash flow tracks toward the $600 million guide, would you intend to remain out of the market for the full year, or is there a path to resuming some opportunistic repurchases through 2026? Or how are you thinking about the longer-dated maturities on the debt side just as you update your buyback plans? Thank you.

Sure. Thanks, Mark. Our priorities remain the same: investing in the business, returning cash to shareholders, and maintaining a strong balance sheet. We are committed to our 2.5x gross leverage. We repurchased those bonds—earlier in the process of doing so was earnings accretive. We were reserving the cash for those bonds. Of course, as we progress through the year, we will maintain the flexibility to return cash to shareholders after funding our Consumer First Formula priorities.

Thank you. Our next question comes from the line of Simeon Siegel with Guggenheim Partners. Please proceed with your question.

Thanks. Hey, everyone. Good morning. Daniel, and sorry if I missed it if you said this—obviously early—but is there any way to quantify the initial reads from Amazon? Maybe how you are thinking about both Amazon and the other incremental wholesale partnerships within the full-year guide for next year? And then just when thinking about wholesale, I am curious, maybe higher level, can you share your thoughts on whether this is something you want to drive customers to wholesale, or is it more so a function of you want to be able to meet your customers where they are? And then just, Eva, just quickly, it was nice to see the B&O leverage, and I heard the comment for go forward. Curious if you could tell us what the leverage point is now for occupancy and then maybe for SG&A as well. Thank you.

Hi, good morning. I will take the strategic question and maybe, Eva, you can follow up. The third pillar of the strategy is really winning in the marketplace, and the ambition here is to make discovery effortless. We are focused on meeting consumers where they are and where they choose to shop—online, in our own stores, and across third-party platforms—and Amazon is an important part of the strategy. We have only been live for a couple of weeks, so it is a bit early to be able to assess performance, but there is no question that the channel meaningfully extends our reach by giving us access to Amazon's broad consumer base and helps us connect, as I said, with both new and lapsed shoppers to drive brand discovery. I am particularly pleased with the response that we have had from the way that the brand looks. If you think about when I started here, our own website offered one photograph per product, and I think it was seen very much as a way for store shoppers to replenish. If you look at how our assortment—and it is a limited assortment to start with on Amazon, there are 50 SKUs—looks, the product photography is incredible. You can see the scent stack. You can see the benefits with lifestyle photography. We are starting to sell the brand through an elevated positioning and product storytelling in a way that we have not done so before, and once we have done that at Amazon, of course, it is relatively quick and cheap to start to roll that out across our existing touch points. Amazon is both a place to drive brand and consumer discovery, no question, and we are competing in the marketplace for traffic on Amazon. For too long, we have allowed our competitors to use our keywords and the fact that we did not have an official brand presence to take the demand that was rightfully ours and funnel it towards their product. That is now no longer happening. We have high expectations for this. It will make a meaningful financial impact in the year, and we are ramping into it.

Great. And, Simeon, good morning. To your question about the full-year guide, inherent in our guide is about $50 million, or a half a point of growth, from our expanded distribution efforts. I would note our Amazon partnership is a wholesale model, so we are not realizing full retail sales. We are excited about the start to the launch, and the teams are highly engaged to continue to drive this strategy forward. On leverage points, I would say we do not really have any changes to our leverage point—B&O at about 2% to 3% sales growth and SG&A at about 2.5% to 3.5% sales growth. Thank you.

Thank you. Our next question comes from the line of Kate McShane with Goldman Sachs. Please proceed with your question.

Thank you. Good morning. Thanks for taking our question. Daniel, you mentioned a few times the words luxury and pricing power, and I wondered if you could drill down a little bit more about what specific initiatives center around these strategies.

Hi, Kate, yes, I think that is a great question. For too long the brand has not listened to the consumer, and that is what we mean when we talk about putting the consumer at the center of everything that we do. We are taking consumer insights and directly translating that into our new and disruptive, innovative product. This is a new process that we are operating. For too long I think that we have looked at mass as the competition, which of course it is, but really the USP of our brand and what we are getting back to is bringing cues and scents from luxury and making it available at accessible price points. That is really the opportunity that we have in front of us. It is not that we are looking to reposition the brand as prestige or move into luxury price points. That is absolutely not what we are doing, but it is luxury scent with benefits at unbelievable value for consumers.

Thank you. And just as a second question, Eva, we wanted to ask about the international outlook. Is there any risk to the numbers you gave today just given the current circumstances in the Middle East? I know there was a little bit of a drag last time we saw conflict in that region on your international sales.

Yes, thanks for the question, Kate. It is quite early. Let me take a step back. We are pleased with the rebound of our international business. In Q4, all geographies delivered growth, and our partners are starting the year in a healthy inventory position. As we look at the Middle East, today, international represents, as you know, about 5% of our total net sales, with the Middle East currently representing about 40% of the portfolio. That is down quite a bit from where we were a couple of years ago. We have a strong, diversified international portfolio. We are expanding our markets, and we have strong, compelling consumer demographics. I think it is too early to comment on the current dynamic in the Middle East. We will continue to monitor it and pivot. Our stores are open and continuing to function, and we are focused on our partners and our associates, of course.

Thank you. Our next question comes from the line of Jonah Kim with TD Cowen. Please proceed with your question.

Daniel, as we think about the collaborations and Amazon, how is your retention strategy different, if at all, and how do you think that will evolve over time? And in terms of the core offering, as you continue to evaluate, what is the right mix of body care, candles, and soap and sanitizer going forward? Thank you so much.

Hi, Jonah. Let me expand a little bit on collabs. As I said in Q3, we are thinking about collabs differently. We love collab. We want to use them differently and more strategically. We want to use them to drive energy into the things that are permanent about this brand—driving energy into our priority franchises, driving energy into our iconic fragrances, or driving energy into a seasonal collection that we are known for. The good news is we have more collabs this year than we did last year, and we are starting to use them strategically already. A really good example of this is live right now. We launched our Peak collab, which has had really excellent response from consumers. What it is doing is not standing alone as a collab, as a separate thing that is used to drive a quarter, but it is actually set up to drive energy into our Easter collection, and we are starting to see good results from that already. When it comes to Amazon, I do think, as I have said in the past, it is predominantly about meeting new and lapsed consumers. We have a very powerful and very successful rewards program with over 40 million members, and over 80% of our transactions in our own network flow through that. That is an excellent tool for continuing retention, but Amazon does not offer our rewards program. We are getting a benefit of having improved AUR on that. That is what the consumer is getting at the balance for speed and convenience. It really is about new and lapsed consumers on Amazon. On the second part of your question with regards to the core offering, we are focused together on making sure that we are taking share. To take share, we should be growing in line or better than the marketplace. That is the standard we expect of ourselves, and that is what the Consumer First Formula will deliver. I do not really think about what is the right balance for the business. I think: where is the consumer demand, where is the growth in the marketplace, and how are we going to claim our rightful share of that?

And just to repeat what you said earlier, Daniel. Particularly as you look at body care and soaps and sanitizers, these are nice, growing markets out there that we can win in.

Absolutely. We do so from a position of strength.

Thank you. Our next question comes from the line of Sydney Wagner with Jefferies. Please proceed with your question.

Just one more kind of on the pricing architecture. How are you thinking about the price taking with newness and what your right to pricing is there? Is there any learnings you have had as you have rolled out some of the brand refresh product? And then just as you work to shift brand perception toward being benefit-led, adding dermatologist-approved claims in store, do you feel the consumer is following you there? What has been the early feedback on those specific claims? Thank you.

Hi, Sydney. With pricing, I think our strategy is very clear. We have relied too often in the past on deeper and more frequent discounts. As we go into 2027, we are expecting AUR improvement on our innovative products. We are expecting to get paid for our innovation, and that product is not just great, innovative, disruptive product in and of itself. It will be wrapped in new energy and new brand identity. I do believe that when you get it right—great product, great brand—brought together in the marketplace, we can start to regain pricing power. That is absolutely the strategy. As Eva and I have both said, across the whole business, it is not our intention in this financial year to use deeper and more frequent discounts as a lever to growth. We know that is not in the best interest of the business long term. That is how we are thinking about pricing. It is not that the pricing or the tickets will be materially different on innovation. It is the fact that it will not be included in some of the more aggressive discounting that we may do. When it comes to benefit-led, it is very clear in our consumer insights for many years that this is a critical thing that we must crack for new and younger consumers to consider the brand. It is really a multipart, 365 strategy. We have rolled out new claims and new levels of ingredient transparency on our product. You can see it today on our labeling, and the presentation that we showed as part of this call gave a couple of highlights of that. It is now prominent and permanent in stores. Our website just launched what we call the Feel Good Formula, which is giving a much more detailed look into our ingredients and our commitment to a cleaner product. It is early days. We are getting good consumer feedback, and we expect this to be a core part of our brand identity as we move through the year. Critical for us.

Thank you. Our final question this morning comes from the line of Krisztina Katai with Deutsche Bank. Please proceed with your question.

Hi. Good morning, and thanks for squeezing me in here. So, Daniel, with the emphasis on attracting new, younger consumers, and I believe I heard you say a roughly tenfold increase in leveraging content creators, can you maybe just talk about your expectations around new customer acquisition, how you see changes in your consumer demographics by age, by income, and then how you are tracking engagement rates on social media platforms that you expect to see as a direct result of these efforts in 2026?

Great question. Our expectations on new consumers are that we are expecting to see a trend break in the levels of new consumers that we are attracting to the brand. We are really focused on that. We welcome all consumers to the brand, and that is what I love. We are a broad church when it comes to consumers. We have propositions like Disney Princesses, which clearly skews younger, and we have a very loyal consumer that we love that skews slightly older. Where we want to play, of course, is where the market is growing, which is in the 25- to 30-year-old female demographic, and that is where our innovation in the back half is truly targeted. When it comes to brand, of course, we are tracking new-to-brand consumers. We have really good new metrics on brand health, and we are expecting improvements in that also. When it comes to social media, there are many metrics that we track, but I would say the most important one is going to be number of posts from the influencers. We are really looking for those thousands of influencers that we recruit to be posting their content about our product and our brand in their voice, because we know from having seen this playbook run with other competitors and those insurgent brands I talked about, that is the secret to success in that area. Thank you for your question. Okay. Thank you, everybody, for your questions. When we work in retail, the holidays do not mean a break. With that in mind, I want to take this last moment to extend a heartfelt thanks to our associates across stores, across distribution centers, and our home office for their continued commitment, passion, and determination. We are acting with urgency and clarity against the Consumer First Formula—creating disruptive and innovative product, reigniting our brand, winning in the marketplace, and operating with speed and efficiency—all to attract new and younger consumers. Our expectations for our business and our brand are high, and this work will take time, but we are confident that we have the platform, the plan, and the team to win. Thank you very much, everybody.